You’ve finally decided to open up a credit card account. The only problem is which one do you choose? To say it can be confusing to figure out which credit card is best for you is an understatement. After cutting through all the jargon and endless marketing, you may realize that a credit card is more than just a piece of plastic—it’s an opportunity to earn rewards and credit card perks, transfer balances, get cash back, and beyond!
So how can you sort through all of the offers and pick the right one? For starters, you need to find a credit card that fits your unique spending habits, financial situation, and lifestyle. The key is to take an honest look at your credit-worthiness and educate yourself on which type of credit card you actually need. In this article, you’ll learn how to choose the best credit for your needs and which type of credit card may be right for you.
Start with your credit score
Before choosing a credit card, it’s essential to understand that your credit score determines which type of cards you can qualify for. As a general rule, the higher your credit score, the better your chances are of being approved for cards with better credit card rewards, lower interest rates, and benefits to save money in the long run. You are entitled to a free credit score once a year from each of the three major credit bureaus (Experian, Equifax, and TransUnion).
Credit scores range from 300 – 850, with a credit score of 700 and above is considered good, whereas anything below 700 presents a risk to a credit issuer. If your score is high, then you’re in luck—a large number of credit cards are available to you. If your score is low, you may want to fix your finances before taking out a line of credit. However, there are credit cards designed for those with bad credit, as we’ll explain later in the article.
Identify why you need a credit card
Once you know your credit score, you can reasonably determine which type of credit card may fit your needs. It’s important to know exactly why you want to create a new credit card account because many credit cards are designed by how you plan to use them. Generally speaking, you may want to open up a new line of credit because you want to:
- Improve your credit when it’s limited or damaged
- Earn rewards for your purchases (i.e., cash back, travel points/miles)
- Save money on interest
- Have a financial backup plan in case of an emergency
- Afford larger purchases with a limited budget
And so forth. Whatever your reasons are, it shouldn’t be a decision you make lightly. For instance, keeping a credit card just for emergencies can have you paying off annual fees for something that you may never use. While that may seem like paying for the privilege of emergency credit, you should know that not carrying a balance on your credit card can bring down your credit score.
Similarly, if you’re looking for a credit card that can give you rewards for dining out, you may want to look for a card that caters to diners by doubling your points at a restaurant. However, some credit cards feature rotating rewards categories that may not have the rewards you program you originally intended.
Lastly, not all credit cards are available to all credit types. Choosing a card designed for credit rehabilitation isn’t smart for someone with excellent credit, as you’ll incur unfavorable terms and rates meant for those with lower credit. On the other hand, those with low credit will waste their time trying to apply for credit cards out of their credit history’s reach.
With this in mind, let’s take a look each type of credit card available to consumers.
Types of credit cards
Cash back credit cards
Do you want to earn rewards for regularly using your credit card? If you’re willing to pay your balance in full each month and never incur interest, a cash back credit card might be the right choice for you. These cards work by allowing you to earn cash rewards (known as points or miles) as a percentage of your purchases, including gas, department stores, groceries, travel, dining out, and so forth. Depending on where you choose to make your purchases, you can earn rewards like 2X when you purchase gas from eligible retailers—some high-tier rewards programs are even as high as 5% of your purchases!
Because cash back rewards cards have such a high earning potential, you may have to shell out for a high APR and annual fees, not to mention you normally need to have above-average credit to be approved.
Low-interest credit cards
Got a big-ticket item you’d like to purchase, but don’t have the funds to buy it outright? A low-interest card can make it possible to carry a balance from one month to the next, accruing only a minimal amount of interest—or none at all. These cards are designed to entice consumers with 0% introductory or lower-than-average APRs, which eventually jump to a higher rate after the introductory period elapses, which may be as long as 12 months after opening up an account. This allows you to pay off your purchases without accruing any interest.
Travel rewards credit cards
Are you a frequent flyer? If you travel often and spend a lot of time in airports, you might prefer a travel rewards card. These cards are designed to reward you each time you make a purchase. Similar to cash back rewards, travel rewards work on a points/miles system, where you can earn and redeem points for free flights, hotels, and other travel-related items. Some cards allow you to redeem your points for cash-back rewards (often at a lower rate than retail.) To make the choice more tempting, travel rewards cards typically come with an initial sign-up bonus, often worth hundreds of dollars simply for using the card frequently in an allotted time.
Balance transfer credit cards
Are you unsatisfied with your credit card(s)’s high-interest rates? Do you have a decent credit score but want to transfer all of your debts to a card with one monthly payment? If so, a balance transfer credit card might be the right choice for you. Essentially, these cards allow you to consolidate your debt by transferring it all to a new card while taking advantage of a low-interest rate—sometimes as low at 0% for months. Depending on the credit issuer, you may have to pay balance transfer fees at a percentage of your debt. By using a balance transfer credit card, you can buy yourself time and uncomplicated your debt payments.
Secured Credit Cards
If you’ve experienced credit mishaps in the past but want to rehabilitate your credit, credit issuers offer secured credit cards to get you back on track. To be approved for a secured credit card, you need to provide collateral up front, which normally is a predetermined amount of cash held as a security deposit. Collateral can also include assets, like your car, jewelry, boat, stocks—anything of monetary value. Most secured credit cards charge fees, as well, so those who take out these cards should understand that they are exchanging some of their money for another shot at establishing their creditworthiness.
By making on-time payments and use the card responsibly, you can eventually raise your credit limit, increase your credit score, and add positive information to your credit history—all things issuers look for when approving new applicants for credit cards.
Student credit cards
By the time they enter college/university, students begin to start assuming financial responsibility for themselves. A student credit card gives them an opportunity to build their credit history, especially since it can be difficult to be approved for a traditional credit card with limited credit. Typically, these unsecured cards feature small, manageable credit limits with limited rewards, reduced credit card benefits, and other features. The idea is that students use these credit cards to prove their financial responsibility, making it easier to graduate to other types of cards with better terms and conditions. It should be noted that some credit issuers don’t require the cardholder to be a student, allowing a person with limited credit history to build a history without setting foot on campus.
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Not every credit card will fit neatly into each of these categories, just as you may have multiple reasons for choosing a particular credit card. As with any financial decision, be sure to read the terms and conditions carefully to inform your decision-making.
To make your decision-making easier, Sift has reviewed a number of credit cards that can help you automatically earn your rewards, keep track of your travel miles, and take advantage of your credit card’s hidden benefits that can save you money. Click below to see each credit card can fit your needs:
- Chase Sapphire Reserve
- American Express Blue Cash Everyday
- Chase Slate
- Capital One Venture Rewards
- Capital One Journey Student Rewards